The Hindu : Business : Finance Ministry raises questions on new FDI rules

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Finance Ministry raises questions on new FDI rules

Special Correspondent

DIPP clarifies that the sectoral cap would apply even to downstream investments

NEW DELHI: The notification of the new foreign direct investment (FDI) norms has run into trouble with the Finance Ministry raising questions on the new rules that have prompted several domestic firms to rework their ownership structure for attracting FDI in areas like retail through backdoor. In a related move, the Department of Industrial Policy and Promotion (DIPP), the nodal point for FDI guidelines, is examining the issues raised by the Finance Ministry.

“The Finance Ministry has raised some generic issues. We should be able to answer those questions and address them properly,” DIPP Joint Secretary Gopal Krishna told reporters on the sidelines of a function here on Friday.

According to the new guidelines, if an Indian company with foreign equity of less than 50 per cent, invests in a firm it would not be considered as FDI.

The DIPP in a further clarification stated that the sectoral cap would apply even to downstream investments but this advice was being ignored by several domestic firms.

On the other hand, Mr. Krishna said global investors were expected to remain positive on India and bring $30 billion FDI into the country in 2009-10 despite the world economy facing a severe credit squeeze.

India is estimated to have received FDI of $27.5 billion in 2008-09, up from $24.57 billion in the previous year.

Mr. Krishna said that if reinvestment by foreign corporations was taken into account, the FDI was $37.5 billion in 2008-09.

“The overall outlook (for 2009-10) remains positive,” Mr. Krishna said at the function.

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